The agreement has made some seek a foothold in Tehran’s $100bn stock market even before sanctions are lifted, although others are taking a more cautious approach.
Classified as an upper-middle income country, with a population of 78m and annual output higher than that of Thailand or the United Arab Emirates, Iran is set to be the biggest economy to rejoin the global trading and financial system since the break-up of the Soviet Union more than 20 years ago. Brokerage Renaissance Capital predicts $1bn will flow into Iran in the first year after sanctions end, although that is not likely to happen for months and may not occur in one go.
London-based boutique First Frontier Capital Ltd is in the process of setting up a sanctions-compliant fund dedicated to Iran, hoping to allow investors to take a position in Tehran’s bourse before sanctions are lifted.
“This is a market where everyone is totally underweight and there will obviously be a lot of money going in, hot money at first but then also others,” said First Frontier’s co-CEO, Richard Adley, who plans to launch the fund in the next few months and aims to have €100m invested by year-end.
“And then there is a big valuation gap there, Iran has a lot of catching up to do when you look at other frontier or emerging markets.”
Others, such as MENA Capital CIO Khaled Abdel Majeed, are also getting ready to invest, but worry that a dedicated country fund carries too many risks at this point. Instead, Majeed is aiming to invest part of his firm’s funds under management in Iranian shares — once the sanctions are lifted.
“At the moment it may be very marketable, but at some point it will become too expensive,” said Majeed, adding that the firm was starting its search for suitable local partners in Tehran.
“And there is also a lot of risk in the deal that has been agreed, and the regime itself is not stable enough to last another 50 years.”
Both Renaissance Capital and the investment consultancy, Ecstrat have reported a sharp pick-up in demand for Iran-related research from asset managers preparing to make the leap.
Some 780m shares traded on the exchange on July 12, the latest data available on its website, representing about $64.2m. Iran mirrors Saudi Arabia in that both are diverse, geopolitically important markets with attractive demographics and stable populations, said Asha Mehta, portfolio manager at Acadian Asset Management in Boston, who runs $500m in frontier market assets for investors.
Yet with issues of access and other trading logistics yet to be worked out for direct investments, international companies already doing business in Iran will stand to benefit, at least in the short-term until restrictions fall away, said Joana Arthur, equity product manager for London-based Ashmore, which has approximately $1.2bn invested in frontier strategies.